Services 2022-2023 | Indian Economy for UPSC CSE PDF Download

 Page 1


CHAPTER
10
India’s services sector witnessed a swift rebound in FY22 driven by growth in the contact-
intensive services sub-sector, which bore the maximum burden of the pandemic. This sub-
sector completely recovered from the pre-pandemic level in Q2 of FY23, driven by the release 
of pent-up demand, ease of mobility restriction, and near-universal vaccination coverage. 
Going forward, strong momentum growth and an uptick in the High-Frequency Indicators 
(HFIs) for the contact-intensive services sector reflect a strong growth opportunity in the next 
fiscal. PMI services, indicative of service sector activity, has also witnessed a strong rebound 
in recent months with the retreating of the price pressures of inputs and raw materials.
India has been a major player in services trade, being among the top ten services exporting 
countries in 2021, having increased its share in world commercial services exports from 3 per 
cent in 2015 to 4 per cent in 2021. India’s services exports have remained resilient during the 
Covid-19 pandemic and amid current geopolitical uncertainties, driven by higher demand for 
digital support, cloud services, and infrastructure modernisation catering to new challenges. 
To ensure the liberalisation of investment in various industries, the Government has permitted 
100 per cent foreign participation in telecommunication services including all services and 
infrastructure providers, through the Automatic Route. The FDI ceiling in insurance companies 
was also raised from 49 to 74 per cent. Measures undertaken by the Government, such as the 
launch of the National Single-Window system and enhancement in the FDI ceiling through the 
automatic route, have played a significant role in facilitating investment.  
With the waning of the pandemic and external shocks on account of the Russia-Ukraine 
conflict, there is evidence of improvement in the performance of various services sub-sectors. 
The hotel industry is thriving with improvements in occupancy rate, increase in the Average 
Room Rate (ARR) and rise in Revenue Per Available Room (RevPAR) which are now much 
nearer to the pre-pandemic level of FY20. The tourism sector is also showing signs of revival, 
with foreign tourist arrivals in India in FY23 growing month-on-month with the resumption 
of scheduled international flights and the easing of Covid-19 regulations. The Real Estate 
sector has witnessed resilient growth in the current year, with housing sales and the launch 
of new houses surpassing in Q2 of FY23 the pre-pandemic level of Q2 of FY20. Information 
Technology-Business Process Management (IT-BPM) and the E-commerce industry have 
been exceptionally resilient during the Covid-19 pandemic, driven by accelerated technology 
adoption and digital transformation. The Government’s push to boost the digital economy, 
growing internet penetration, rise in smartphone adoption and increased adoption of digital 
SERVICES: SOURCE OF 
STRENGTH
Page 2


CHAPTER
10
India’s services sector witnessed a swift rebound in FY22 driven by growth in the contact-
intensive services sub-sector, which bore the maximum burden of the pandemic. This sub-
sector completely recovered from the pre-pandemic level in Q2 of FY23, driven by the release 
of pent-up demand, ease of mobility restriction, and near-universal vaccination coverage. 
Going forward, strong momentum growth and an uptick in the High-Frequency Indicators 
(HFIs) for the contact-intensive services sector reflect a strong growth opportunity in the next 
fiscal. PMI services, indicative of service sector activity, has also witnessed a strong rebound 
in recent months with the retreating of the price pressures of inputs and raw materials.
India has been a major player in services trade, being among the top ten services exporting 
countries in 2021, having increased its share in world commercial services exports from 3 per 
cent in 2015 to 4 per cent in 2021. India’s services exports have remained resilient during the 
Covid-19 pandemic and amid current geopolitical uncertainties, driven by higher demand for 
digital support, cloud services, and infrastructure modernisation catering to new challenges. 
To ensure the liberalisation of investment in various industries, the Government has permitted 
100 per cent foreign participation in telecommunication services including all services and 
infrastructure providers, through the Automatic Route. The FDI ceiling in insurance companies 
was also raised from 49 to 74 per cent. Measures undertaken by the Government, such as the 
launch of the National Single-Window system and enhancement in the FDI ceiling through the 
automatic route, have played a significant role in facilitating investment.  
With the waning of the pandemic and external shocks on account of the Russia-Ukraine 
conflict, there is evidence of improvement in the performance of various services sub-sectors. 
The hotel industry is thriving with improvements in occupancy rate, increase in the Average 
Room Rate (ARR) and rise in Revenue Per Available Room (RevPAR) which are now much 
nearer to the pre-pandemic level of FY20. The tourism sector is also showing signs of revival, 
with foreign tourist arrivals in India in FY23 growing month-on-month with the resumption 
of scheduled international flights and the easing of Covid-19 regulations. The Real Estate 
sector has witnessed resilient growth in the current year, with housing sales and the launch 
of new houses surpassing in Q2 of FY23 the pre-pandemic level of Q2 of FY20. Information 
Technology-Business Process Management (IT-BPM) and the E-commerce industry have 
been exceptionally resilient during the Covid-19 pandemic, driven by accelerated technology 
adoption and digital transformation. The Government’s push to boost the digital economy, 
growing internet penetration, rise in smartphone adoption and increased adoption of digital 
SERVICES: SOURCE OF 
STRENGTH
293 Services: Source of Strength
payments have also given a renewed push to these industries. The introduction and piloting 
of Central Bank Digital Currency (CBDC) will also provide a significant boost to digital 
financial services. They may lay the framework for another generation of financial innovation.
Introduction
10.1 The Covid-19 pandemic hurt most sectors of the economy, with the effect particularly 
profound for contact-intensive services sectors like tourism, retail trade, hotel, entertainment, 
and recreation. On the other hand, non-contact services such as information, communication, 
financial, professional, and business services remained resilient. However, the services sector 
witnessed a swift rebound in FY22, growing Year-on-Year (YoY) at 8.4 per cent compared to a 
contraction of 7.8 per cent in the previous financial year. The improvement was driven by growth 
in the ‘Trade, Hotel, Transport, Storage, Communication and Services related to broadcasting’ 
sub-sector, which bore the maximum burden of the pandemic. The growth momentum has 
continued in FY23 as well. As per the First Advance Estimates, Gross Value Added (GVA) in 
the services sector is estimated to grow at 9.1 per cent in FY23, driven by 13.7 per cent growth 
in contact-intensive services sector.
Figure X.1: Broad-based growth in the Services sector
 
-30
-20
-10
0
10
20
0
10
20
30
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2019-20 2020-21 2021-22 2022-23
Per cent 
? Lakh Crore 
GVA in Services sector YoY growth (RHS)
Source: NSO, MOSPI
10.2 Even on a sequential basis, the rebound continued in Q2 of FY23, with the services sector 
recording 8.7 per cent sequential growth. The contact-intensive services sub-sector completely 
recovered the pre-pandemic level and registered sequential growth of 16 per cent, driven by the 
release of pent-up demand, ease of mobility restriction, and near-universal vaccination coverage. 
Going forward, the buoyant recovery of the contact-intensive services sector, accompanied by 
the robust performance of HFIs, suggests that the sector is likely to be the growth driver in the 
next fiscal.
Page 3


CHAPTER
10
India’s services sector witnessed a swift rebound in FY22 driven by growth in the contact-
intensive services sub-sector, which bore the maximum burden of the pandemic. This sub-
sector completely recovered from the pre-pandemic level in Q2 of FY23, driven by the release 
of pent-up demand, ease of mobility restriction, and near-universal vaccination coverage. 
Going forward, strong momentum growth and an uptick in the High-Frequency Indicators 
(HFIs) for the contact-intensive services sector reflect a strong growth opportunity in the next 
fiscal. PMI services, indicative of service sector activity, has also witnessed a strong rebound 
in recent months with the retreating of the price pressures of inputs and raw materials.
India has been a major player in services trade, being among the top ten services exporting 
countries in 2021, having increased its share in world commercial services exports from 3 per 
cent in 2015 to 4 per cent in 2021. India’s services exports have remained resilient during the 
Covid-19 pandemic and amid current geopolitical uncertainties, driven by higher demand for 
digital support, cloud services, and infrastructure modernisation catering to new challenges. 
To ensure the liberalisation of investment in various industries, the Government has permitted 
100 per cent foreign participation in telecommunication services including all services and 
infrastructure providers, through the Automatic Route. The FDI ceiling in insurance companies 
was also raised from 49 to 74 per cent. Measures undertaken by the Government, such as the 
launch of the National Single-Window system and enhancement in the FDI ceiling through the 
automatic route, have played a significant role in facilitating investment.  
With the waning of the pandemic and external shocks on account of the Russia-Ukraine 
conflict, there is evidence of improvement in the performance of various services sub-sectors. 
The hotel industry is thriving with improvements in occupancy rate, increase in the Average 
Room Rate (ARR) and rise in Revenue Per Available Room (RevPAR) which are now much 
nearer to the pre-pandemic level of FY20. The tourism sector is also showing signs of revival, 
with foreign tourist arrivals in India in FY23 growing month-on-month with the resumption 
of scheduled international flights and the easing of Covid-19 regulations. The Real Estate 
sector has witnessed resilient growth in the current year, with housing sales and the launch 
of new houses surpassing in Q2 of FY23 the pre-pandemic level of Q2 of FY20. Information 
Technology-Business Process Management (IT-BPM) and the E-commerce industry have 
been exceptionally resilient during the Covid-19 pandemic, driven by accelerated technology 
adoption and digital transformation. The Government’s push to boost the digital economy, 
growing internet penetration, rise in smartphone adoption and increased adoption of digital 
SERVICES: SOURCE OF 
STRENGTH
293 Services: Source of Strength
payments have also given a renewed push to these industries. The introduction and piloting 
of Central Bank Digital Currency (CBDC) will also provide a significant boost to digital 
financial services. They may lay the framework for another generation of financial innovation.
Introduction
10.1 The Covid-19 pandemic hurt most sectors of the economy, with the effect particularly 
profound for contact-intensive services sectors like tourism, retail trade, hotel, entertainment, 
and recreation. On the other hand, non-contact services such as information, communication, 
financial, professional, and business services remained resilient. However, the services sector 
witnessed a swift rebound in FY22, growing Year-on-Year (YoY) at 8.4 per cent compared to a 
contraction of 7.8 per cent in the previous financial year. The improvement was driven by growth 
in the ‘Trade, Hotel, Transport, Storage, Communication and Services related to broadcasting’ 
sub-sector, which bore the maximum burden of the pandemic. The growth momentum has 
continued in FY23 as well. As per the First Advance Estimates, Gross Value Added (GVA) in 
the services sector is estimated to grow at 9.1 per cent in FY23, driven by 13.7 per cent growth 
in contact-intensive services sector.
Figure X.1: Broad-based growth in the Services sector
 
-30
-20
-10
0
10
20
0
10
20
30
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2019-20 2020-21 2021-22 2022-23
Per cent 
? Lakh Crore 
GVA in Services sector YoY growth (RHS)
Source: NSO, MOSPI
10.2 Even on a sequential basis, the rebound continued in Q2 of FY23, with the services sector 
recording 8.7 per cent sequential growth. The contact-intensive services sub-sector completely 
recovered the pre-pandemic level and registered sequential growth of 16 per cent, driven by the 
release of pent-up demand, ease of mobility restriction, and near-universal vaccination coverage. 
Going forward, the buoyant recovery of the contact-intensive services sector, accompanied by 
the robust performance of HFIs, suggests that the sector is likely to be the growth driver in the 
next fiscal.
294 Economic Survey 2022-23
Figure X.2: The services sector witnessed strong growth momentum in Q2 of FY23.
 
-30
-20
-10
0
10
20
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2019-20 2020-21 2021-22 2022-23
Per cent 
YoY growth Sequential growth
  Source: NSO, MOSPI
10.3 The following sections discuss the trend in various HFIs to track the growth momentum of 
the services sector as a whole and also discuss the performance of various services sub-sectors.  
Trends in High-Frequency Indicators
Services PMI
10.4 India’s services sector activity, gauged by PMI Services, which remained in the 
contractionary zone for several months during 2020 and 2021 on account of the restrictions 
imposed to tackle the Covid-19 pandemic, recovered swiftly with the waning of the Omicron 
variant at the beginning of 2022. However, PMI services again witnessed a setback with the 
outbreak of the Russia-Ukraine conflict. The indicator moderated from May to September 2022 
as economic uncertainty resulted in weaker sales growth and inflationary pressures restricting 
the upturn in business activity. Further, price pressures and unfavourable weather also dampened 
domestic demand. However, following an overall easing of retail inflation leading to retreating 
price pressures of inputs and raw materials, PMI services witnessed an uptick and expanded to 
58.5 in December 2022.
Figure X.3: PMI Services remained in an expansionary zone despite geopolitical tensions
 
0
10
20
30
40
50
60
70
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Index (50=Neutral) 
Lock Down 1 
2nd Covid 
Omicron 
wave 
   Source: IHS Markit
Page 4


CHAPTER
10
India’s services sector witnessed a swift rebound in FY22 driven by growth in the contact-
intensive services sub-sector, which bore the maximum burden of the pandemic. This sub-
sector completely recovered from the pre-pandemic level in Q2 of FY23, driven by the release 
of pent-up demand, ease of mobility restriction, and near-universal vaccination coverage. 
Going forward, strong momentum growth and an uptick in the High-Frequency Indicators 
(HFIs) for the contact-intensive services sector reflect a strong growth opportunity in the next 
fiscal. PMI services, indicative of service sector activity, has also witnessed a strong rebound 
in recent months with the retreating of the price pressures of inputs and raw materials.
India has been a major player in services trade, being among the top ten services exporting 
countries in 2021, having increased its share in world commercial services exports from 3 per 
cent in 2015 to 4 per cent in 2021. India’s services exports have remained resilient during the 
Covid-19 pandemic and amid current geopolitical uncertainties, driven by higher demand for 
digital support, cloud services, and infrastructure modernisation catering to new challenges. 
To ensure the liberalisation of investment in various industries, the Government has permitted 
100 per cent foreign participation in telecommunication services including all services and 
infrastructure providers, through the Automatic Route. The FDI ceiling in insurance companies 
was also raised from 49 to 74 per cent. Measures undertaken by the Government, such as the 
launch of the National Single-Window system and enhancement in the FDI ceiling through the 
automatic route, have played a significant role in facilitating investment.  
With the waning of the pandemic and external shocks on account of the Russia-Ukraine 
conflict, there is evidence of improvement in the performance of various services sub-sectors. 
The hotel industry is thriving with improvements in occupancy rate, increase in the Average 
Room Rate (ARR) and rise in Revenue Per Available Room (RevPAR) which are now much 
nearer to the pre-pandemic level of FY20. The tourism sector is also showing signs of revival, 
with foreign tourist arrivals in India in FY23 growing month-on-month with the resumption 
of scheduled international flights and the easing of Covid-19 regulations. The Real Estate 
sector has witnessed resilient growth in the current year, with housing sales and the launch 
of new houses surpassing in Q2 of FY23 the pre-pandemic level of Q2 of FY20. Information 
Technology-Business Process Management (IT-BPM) and the E-commerce industry have 
been exceptionally resilient during the Covid-19 pandemic, driven by accelerated technology 
adoption and digital transformation. The Government’s push to boost the digital economy, 
growing internet penetration, rise in smartphone adoption and increased adoption of digital 
SERVICES: SOURCE OF 
STRENGTH
293 Services: Source of Strength
payments have also given a renewed push to these industries. The introduction and piloting 
of Central Bank Digital Currency (CBDC) will also provide a significant boost to digital 
financial services. They may lay the framework for another generation of financial innovation.
Introduction
10.1 The Covid-19 pandemic hurt most sectors of the economy, with the effect particularly 
profound for contact-intensive services sectors like tourism, retail trade, hotel, entertainment, 
and recreation. On the other hand, non-contact services such as information, communication, 
financial, professional, and business services remained resilient. However, the services sector 
witnessed a swift rebound in FY22, growing Year-on-Year (YoY) at 8.4 per cent compared to a 
contraction of 7.8 per cent in the previous financial year. The improvement was driven by growth 
in the ‘Trade, Hotel, Transport, Storage, Communication and Services related to broadcasting’ 
sub-sector, which bore the maximum burden of the pandemic. The growth momentum has 
continued in FY23 as well. As per the First Advance Estimates, Gross Value Added (GVA) in 
the services sector is estimated to grow at 9.1 per cent in FY23, driven by 13.7 per cent growth 
in contact-intensive services sector.
Figure X.1: Broad-based growth in the Services sector
 
-30
-20
-10
0
10
20
0
10
20
30
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2019-20 2020-21 2021-22 2022-23
Per cent 
? Lakh Crore 
GVA in Services sector YoY growth (RHS)
Source: NSO, MOSPI
10.2 Even on a sequential basis, the rebound continued in Q2 of FY23, with the services sector 
recording 8.7 per cent sequential growth. The contact-intensive services sub-sector completely 
recovered the pre-pandemic level and registered sequential growth of 16 per cent, driven by the 
release of pent-up demand, ease of mobility restriction, and near-universal vaccination coverage. 
Going forward, the buoyant recovery of the contact-intensive services sector, accompanied by 
the robust performance of HFIs, suggests that the sector is likely to be the growth driver in the 
next fiscal.
294 Economic Survey 2022-23
Figure X.2: The services sector witnessed strong growth momentum in Q2 of FY23.
 
-30
-20
-10
0
10
20
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2019-20 2020-21 2021-22 2022-23
Per cent 
YoY growth Sequential growth
  Source: NSO, MOSPI
10.3 The following sections discuss the trend in various HFIs to track the growth momentum of 
the services sector as a whole and also discuss the performance of various services sub-sectors.  
Trends in High-Frequency Indicators
Services PMI
10.4 India’s services sector activity, gauged by PMI Services, which remained in the 
contractionary zone for several months during 2020 and 2021 on account of the restrictions 
imposed to tackle the Covid-19 pandemic, recovered swiftly with the waning of the Omicron 
variant at the beginning of 2022. However, PMI services again witnessed a setback with the 
outbreak of the Russia-Ukraine conflict. The indicator moderated from May to September 2022 
as economic uncertainty resulted in weaker sales growth and inflationary pressures restricting 
the upturn in business activity. Further, price pressures and unfavourable weather also dampened 
domestic demand. However, following an overall easing of retail inflation leading to retreating 
price pressures of inputs and raw materials, PMI services witnessed an uptick and expanded to 
58.5 in December 2022.
Figure X.3: PMI Services remained in an expansionary zone despite geopolitical tensions
 
0
10
20
30
40
50
60
70
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Index (50=Neutral) 
Lock Down 1 
2nd Covid 
Omicron 
wave 
   Source: IHS Markit
295 Services: Source of Strength
Bank Credit
10.5 Bank credit to the services sector has witnessed significant growth since October 2021 
with the improvement in vaccination coverage and recovery in the services sector. The credit to 
services sector saw a YoY growth of 21.3 per cent in November 2022, the second highest in 46 
months, compared to a 3.3 per cent growth in November 2021. Within the services sector, credit 
to wholesale and retail trade increased by 10.2 per cent and 21.9 per cent in November 2022, 
respectively, reflecting the strength of the underlying economic activity. Credit to NBFCs grew 
by 32.9 per cent as NBFCs shifted to bank borrowings because of high bond yields. Uncertain 
growth prospects in the global markets and uneven credit allocation to the transport sector led to 
a decline in credit to the shipping and aviation sector by 7.9 per cent and 8.7 per cent respectively 
in November 2022.
Figure X.4: Credit offtake by the services sector registering double-digit growth since April 2022
 
 
0
5
10
15
20
25
0
10
20
30
40
Jan-21
Mar-21
May-21
Jul-21
Sep-21
Nov-21
Jan-22
Mar-22
May-22
Jul-22
Sep-22
Nov-22
Per cent 
? Lakh Crore 
Bank Credit to Services sector YoY growth (RHS)
  Source: RBI
Services Trade
10.6 World services trade volume finally surpassed its pre-pandemic peak in the second quarter 
of 2022 and was expected to remain strong in the third quarter, buoyed by spending on travel, 
Information and Communication Technology (ICT) services, and financial services. However, 
WTO’s Services Trade Barometer Index reading fell to 98.3 for October 2022 (slightly below 
its baseline value of 100), well below the previous reading of 105.5 in June 2022 indicating 
that YoY growth in real commercial services began moderating in the third quarter of 2022 
and may slow further in the fourth as well as into the first quarter of 2023 due to declining 
growth prospects in major service industry economies. Financial and ICT Services have been so 
far most resilient to the slowing global economy, whereas, construction services and container 
shipping fell into contraction territory. 
10.7 Insofar as India is concerned, some headwinds may be observed in the coming months 
because of the slowing growth in some of India’s major trading partners. On the contrary, India’s 
services exports may improve as runaway inflation in advanced economies drives up wages and 
makes local sourcing expensive, opening up avenues for outsourcing to low-wage countries, 
including India. India is a significant player in services trade, being among the top ten services 
Page 5


CHAPTER
10
India’s services sector witnessed a swift rebound in FY22 driven by growth in the contact-
intensive services sub-sector, which bore the maximum burden of the pandemic. This sub-
sector completely recovered from the pre-pandemic level in Q2 of FY23, driven by the release 
of pent-up demand, ease of mobility restriction, and near-universal vaccination coverage. 
Going forward, strong momentum growth and an uptick in the High-Frequency Indicators 
(HFIs) for the contact-intensive services sector reflect a strong growth opportunity in the next 
fiscal. PMI services, indicative of service sector activity, has also witnessed a strong rebound 
in recent months with the retreating of the price pressures of inputs and raw materials.
India has been a major player in services trade, being among the top ten services exporting 
countries in 2021, having increased its share in world commercial services exports from 3 per 
cent in 2015 to 4 per cent in 2021. India’s services exports have remained resilient during the 
Covid-19 pandemic and amid current geopolitical uncertainties, driven by higher demand for 
digital support, cloud services, and infrastructure modernisation catering to new challenges. 
To ensure the liberalisation of investment in various industries, the Government has permitted 
100 per cent foreign participation in telecommunication services including all services and 
infrastructure providers, through the Automatic Route. The FDI ceiling in insurance companies 
was also raised from 49 to 74 per cent. Measures undertaken by the Government, such as the 
launch of the National Single-Window system and enhancement in the FDI ceiling through the 
automatic route, have played a significant role in facilitating investment.  
With the waning of the pandemic and external shocks on account of the Russia-Ukraine 
conflict, there is evidence of improvement in the performance of various services sub-sectors. 
The hotel industry is thriving with improvements in occupancy rate, increase in the Average 
Room Rate (ARR) and rise in Revenue Per Available Room (RevPAR) which are now much 
nearer to the pre-pandemic level of FY20. The tourism sector is also showing signs of revival, 
with foreign tourist arrivals in India in FY23 growing month-on-month with the resumption 
of scheduled international flights and the easing of Covid-19 regulations. The Real Estate 
sector has witnessed resilient growth in the current year, with housing sales and the launch 
of new houses surpassing in Q2 of FY23 the pre-pandemic level of Q2 of FY20. Information 
Technology-Business Process Management (IT-BPM) and the E-commerce industry have 
been exceptionally resilient during the Covid-19 pandemic, driven by accelerated technology 
adoption and digital transformation. The Government’s push to boost the digital economy, 
growing internet penetration, rise in smartphone adoption and increased adoption of digital 
SERVICES: SOURCE OF 
STRENGTH
293 Services: Source of Strength
payments have also given a renewed push to these industries. The introduction and piloting 
of Central Bank Digital Currency (CBDC) will also provide a significant boost to digital 
financial services. They may lay the framework for another generation of financial innovation.
Introduction
10.1 The Covid-19 pandemic hurt most sectors of the economy, with the effect particularly 
profound for contact-intensive services sectors like tourism, retail trade, hotel, entertainment, 
and recreation. On the other hand, non-contact services such as information, communication, 
financial, professional, and business services remained resilient. However, the services sector 
witnessed a swift rebound in FY22, growing Year-on-Year (YoY) at 8.4 per cent compared to a 
contraction of 7.8 per cent in the previous financial year. The improvement was driven by growth 
in the ‘Trade, Hotel, Transport, Storage, Communication and Services related to broadcasting’ 
sub-sector, which bore the maximum burden of the pandemic. The growth momentum has 
continued in FY23 as well. As per the First Advance Estimates, Gross Value Added (GVA) in 
the services sector is estimated to grow at 9.1 per cent in FY23, driven by 13.7 per cent growth 
in contact-intensive services sector.
Figure X.1: Broad-based growth in the Services sector
 
-30
-20
-10
0
10
20
0
10
20
30
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2019-20 2020-21 2021-22 2022-23
Per cent 
? Lakh Crore 
GVA in Services sector YoY growth (RHS)
Source: NSO, MOSPI
10.2 Even on a sequential basis, the rebound continued in Q2 of FY23, with the services sector 
recording 8.7 per cent sequential growth. The contact-intensive services sub-sector completely 
recovered the pre-pandemic level and registered sequential growth of 16 per cent, driven by the 
release of pent-up demand, ease of mobility restriction, and near-universal vaccination coverage. 
Going forward, the buoyant recovery of the contact-intensive services sector, accompanied by 
the robust performance of HFIs, suggests that the sector is likely to be the growth driver in the 
next fiscal.
294 Economic Survey 2022-23
Figure X.2: The services sector witnessed strong growth momentum in Q2 of FY23.
 
-30
-20
-10
0
10
20
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2019-20 2020-21 2021-22 2022-23
Per cent 
YoY growth Sequential growth
  Source: NSO, MOSPI
10.3 The following sections discuss the trend in various HFIs to track the growth momentum of 
the services sector as a whole and also discuss the performance of various services sub-sectors.  
Trends in High-Frequency Indicators
Services PMI
10.4 India’s services sector activity, gauged by PMI Services, which remained in the 
contractionary zone for several months during 2020 and 2021 on account of the restrictions 
imposed to tackle the Covid-19 pandemic, recovered swiftly with the waning of the Omicron 
variant at the beginning of 2022. However, PMI services again witnessed a setback with the 
outbreak of the Russia-Ukraine conflict. The indicator moderated from May to September 2022 
as economic uncertainty resulted in weaker sales growth and inflationary pressures restricting 
the upturn in business activity. Further, price pressures and unfavourable weather also dampened 
domestic demand. However, following an overall easing of retail inflation leading to retreating 
price pressures of inputs and raw materials, PMI services witnessed an uptick and expanded to 
58.5 in December 2022.
Figure X.3: PMI Services remained in an expansionary zone despite geopolitical tensions
 
0
10
20
30
40
50
60
70
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Index (50=Neutral) 
Lock Down 1 
2nd Covid 
Omicron 
wave 
   Source: IHS Markit
295 Services: Source of Strength
Bank Credit
10.5 Bank credit to the services sector has witnessed significant growth since October 2021 
with the improvement in vaccination coverage and recovery in the services sector. The credit to 
services sector saw a YoY growth of 21.3 per cent in November 2022, the second highest in 46 
months, compared to a 3.3 per cent growth in November 2021. Within the services sector, credit 
to wholesale and retail trade increased by 10.2 per cent and 21.9 per cent in November 2022, 
respectively, reflecting the strength of the underlying economic activity. Credit to NBFCs grew 
by 32.9 per cent as NBFCs shifted to bank borrowings because of high bond yields. Uncertain 
growth prospects in the global markets and uneven credit allocation to the transport sector led to 
a decline in credit to the shipping and aviation sector by 7.9 per cent and 8.7 per cent respectively 
in November 2022.
Figure X.4: Credit offtake by the services sector registering double-digit growth since April 2022
 
 
0
5
10
15
20
25
0
10
20
30
40
Jan-21
Mar-21
May-21
Jul-21
Sep-21
Nov-21
Jan-22
Mar-22
May-22
Jul-22
Sep-22
Nov-22
Per cent 
? Lakh Crore 
Bank Credit to Services sector YoY growth (RHS)
  Source: RBI
Services Trade
10.6 World services trade volume finally surpassed its pre-pandemic peak in the second quarter 
of 2022 and was expected to remain strong in the third quarter, buoyed by spending on travel, 
Information and Communication Technology (ICT) services, and financial services. However, 
WTO’s Services Trade Barometer Index reading fell to 98.3 for October 2022 (slightly below 
its baseline value of 100), well below the previous reading of 105.5 in June 2022 indicating 
that YoY growth in real commercial services began moderating in the third quarter of 2022 
and may slow further in the fourth as well as into the first quarter of 2023 due to declining 
growth prospects in major service industry economies. Financial and ICT Services have been so 
far most resilient to the slowing global economy, whereas, construction services and container 
shipping fell into contraction territory. 
10.7 Insofar as India is concerned, some headwinds may be observed in the coming months 
because of the slowing growth in some of India’s major trading partners. On the contrary, India’s 
services exports may improve as runaway inflation in advanced economies drives up wages and 
makes local sourcing expensive, opening up avenues for outsourcing to low-wage countries, 
including India. India is a significant player in services trade, being among the top ten services 
296 Economic Survey 2022-23
exporter countries in 2021, having increased its share in world commercial services exports 
from 3 per cent in 2015 to 4 per cent in 2021. A further increase in the share is likely, with the 
services exports registering growth of 27.7 per cent during April-December 2022 as compared 
to 20.4 per cent in the corresponding period last year. 
10.8 Among services exports, software exports have remained relatively resilient during the 
Covid-19 pandemic as well as amid current geopolitical uncertainties, driven by higher demand 
for digital support, cloud services, and infrastructure modernisation catering to new challenges. 
Transport and travel exports have been the most impacted sub-components of the services exports 
in FY21 and FY22, which contracted due to the imposition of restrictions on international travel 
and tourism during the Covid-19 pandemic. If there is a meaningful economic slowdown in 
advanced nations, tourism and travel earnings in FY24 may be on the lower side.
Figure X.5: Services Exports remained resilient amid geopolitical uncertainties.
 
0
5
10
15
20
25
30
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
USD Billion
Net services receipts Service Exports Service Imports
Source: RBI
Foreign Direct Investment (FDI) in Services
10.9 The World Investment Report 2022 of UNCTAD places India as the seventh largest 
recipient of FDI in the top 20 host countries in 2021. In FY22 India received the highest-ever 
FDI inflows of US$ 84.8 billion including US$ 7.1 billion FDI equity inflows in the services 
sector. To facilitate investment, various measures have been undertaken by the Government, 
such as the launch of the National Single-Window system, a one-stop solution for approvals and 
clearances needed by investors, entrepreneurs, and businesses. To ensure the liberalisation of 
investment in various industries, the Government has permitted 100 per cent foreign participation 
in telecommunication services, including all services and infrastructure providers, through the 
Automatic Route. The FDI ceiling in insurance companies was also raised from 49 to 74 per 
cent, under Automatic Route. Further, Government has allowed 20 per cent foreign investment 
in Life Insurance Corporation (LIC) under the automatic route.